Free markets take an undue blame for many of today’s top problems, when the problems are rooted in government interference. This is true for health care. The cost of health care has risen faster than inflation for decades and is hitting that level where affordability is becoming a growing concern.
Many people reflexively blame free markets for the problem. They think insurance companies and health care providers are just out to fleece us while the guys that run these businesses smoke their fat stogies in their posh boardrooms and spend all our money.
They neglect to consider the impact government interference has on the health care market. Health care costs have climbed right along with the percent of medical paid by government programs. Costs have also climbed along with the percent medical paid by third parties, driven by the tax advantage of employer paid health insurance and sate mandates on what treatments health insurance policies cover. These alone cause enough trouble. That doesn’t get to the supply constraints placed on the market by state and local governments that regulate hospital beds or the AMA’s soft influence on the quantity of medical providers in the market or cost constraints placed on hospitals for not being allowed to turn away someone based on their ability to pay (someone has to pay those costs).
In fact, rarely are these things ever discussed. The fact is the U.S. health care market is about as far from a free market as you can get.
Few people understand what a free market is. Many people define a free market as one that has the presence of for-profit companies. That’s wrong. A free market is one that’s free from government intervention and regulation. Our health care market is far from that.
I’ll take the definition of free market further. I consider a free market to be one where a reasonable percentage of the costs are paid by first parties (i.e. the people using the service) through voluntary transactions.
Which brings us to another misconception about the health care market. Some people argue that many medical procedures are not voluntary. In other words, a person must get a life saving treatment or die, which puts health care providers in a more powerful bargaining position.
That argument seems sounds, but ignores the evidence that has piled up from markets in other goods and services that are relatively more of a free market than health care, that is free markets are eventually great for everyone. The innovation and competitiveness bring more choices and quality for all levels of budgets than less free markets. How vital is food? Very. You need it to live. Yet the percent of income we spend on food has fallen dramatically over the past century as our food processes have become more productive through innovation and competition.
That reduction in food costs gives us more income to spend on other things like cell phones, iPods and maids. People in my family have maids that clean their homes twice a month. Only the wealthy could afford anything like that when I was a kid.
Finally, that brings me back to my original thought. Why health care reform may not be a bad idea. If we eliminate all pretenses of a free market and health care blows up in our faces – along with the faces of other countries that depend on our innovations to keep their government medical systems serviceable – we will not be able to blame free markets any longer.